Housing Isn’t Overvalued, Except in These 10 Spots

A deluge of U.S. housing data this week point to a sector that is bouncing back from the winter doldrums, but experts say the real estate market is still far from the bubble-like conditions it reached before the financial crisis hit.

That’s the takeaway from online real-estate marketplace Trulia, which on Tuesday released its quarterly “Bubble Watch” housing data. The firm found that home prices across the U.S. appear to be 3% undervalued compared to long-term trends. Trulia looks for potential bubbles using price-to-income and price-to-rent ratios, and compares home prices to historical trends.

While the country as a whole may be in fine shape, prices in California aren’t nearly as restrained. As the chart below shows, eight of the 10 most overvalued U.S. housing markets are in the Golden State. Orange Country, Los Angeles and Riverside-San Bernardino are in the top four.

Trulia

Jed Kolko, chief economist at Trulia, says even those markets aren’t yet repeating the mistakes of the recent past.

“These California markets are much less overvalued than they were at the height of the bubble,” Mr. Kolko says. ”Even in the bubbliest markets, it’s not 2006 all over again.”

The only market on the list above that is more overvalued today than it was in 2006 is Austin “and that’s because Austin (and Texas generally) avoided the worst of last decade’s bubble and bust,” he added.

By comparison, here’s a look at the 10 most undervalued U.S. markets right now and how they stack up to 2006.

“We’d be at greatest risk of heading toward a bubble if price gains were still accelerating, but they’re not,” says Jed Kolko, chief economist at Trulia. “The good news for bubblephobes is that price gains are now slowing down.”